The major market averages had their best week since June last week, with the S&P 500 tacking on 2.2%. The broad-market barometer is now at its highest level since January 2008.

The economic calendar was fairly light on the day, with the headline figures coming from Asia. Industrial output in China, the world's No. 2 economy, slowed down to the slowest pace in three years in August. The country said its industrial production gauge climbed 8.9% on a year-to-year basis from 9.2% the month before.

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Japan also faced a downward revision to its second-quarter economic expansion. The country's economy grew at an annualized rate of 0.7% for the quarter, down sharply from a prior estimate of 1.4%, and less than forecasts of 1%.

Market participants were gearing up for a busy week filled with events that could roil Wall Street. The German Constitutional Court is expected to rule on the European Stability Mechanism, the eurozone's permanent rescue fund, on Wednesday.

The ESM has been ratified by Germany's parliament, and most analysts expect the powerful court not to knock it down. However, analysts at Fitch Ratings warn that "a negative verdict ... would be likely to create significant market volatility."

There is also a Dutch parliamentary election and a major product announcement from tech behemoth Apple (AAPL) that day.

The Fed will also hold its two-day meeting that ends with a monetary policy statement and press conference on Thursday. A round of weak economic data has strengthened expectations among analysts that the central bank will unleash more stimulus to boost economic growth.

"Fed officials are virtually certain to ease monetary policy,” Goldman Sachs Chief U.S. Economist Jan Hatzius wrote in a note to clients Sunday. "The employment and ISM (manufacturing) numbers have removed the remaining doubts, and everything now points to a substantial easing step."

Hatzius cautions, however, that easing doesn’t necessarily imply more quantitative easing, and could come in the form of a strengthening of the central bank’s forward guidance for interest rates.

In corporate news, the U.S. Treasury Department said that it will sell at least $18 billion of its stock in bailed-out insurer American International Group (AIG). The U.S. is expected to own less than 20% in the company depending on the pricing, down from 53% currently. This will be the first time since the financial crisis in 2008 that the American government won't be a majority shareholder in the company.

Hewlett-Packard (HPQ) said in a regulatory filing it expects to shed 29,000 jobs through fiscal 2014 as part of its previously-disclosed restructuring. The technology company had said in May that the move would result in a loss of 27,000 jobs.

BP (BP) revealed plans to sell a portion of its deep-water assets in the Gulf of Mexico to Plains Exploration & Production Co. for $5.55 billion.

In commodities, oil edged lower by 18 cents, or 0.2%, to $96.21 a barrel. Wholesale New York Harbor gasoline rose 0.25% to $3.027 a gallon.

Gold dipped $8.50, or 0.48%, to $1,732 a troy ounce.

Foreign Markets

The Euro Stoxx 50 fell 0.38% to 2529, the English FTSE 100 slipped 0.02% to 5794 and the German DAX was flat at 7214.

In Asia, the Japanese Nikkei 225 ticked lower by 0.03% to 8869 and the Chinese Hang Seng drifted higher by 0.13% to 19827.